Outlook: Gas regulation

HINDSIGHT is, admittedly, a wonderful thing. But with every day that passes it becomes more apparent still that BG got off lightly at the hands of the departing gas regulator, Clare Spottiswoode. Remember the fearful wailing and gnashing of teeth that followed her initial proposals for controlling the prices Transco charges for piping gas around the country? The biggest smash-and-grab raid in history, fumed the gasmen - seizure of shareholders' funds on an unprecedented scale. There would be 10,000 job losses and the integrity of the entire gas network would be at risk.

That was two years ago. These days the gasmen don't like to be reminded of their apocryphal predictions. In fact, it has all turned out rather nicely. Far from being raped and pillaged, BG has found enough slack in its balance sheet to return pounds 1.2bn of capital to shareholders and now it is contemplating the return of a further pounds 1.5bn. What's more, it is beating the rate of return set down by the regulator and endorsed by the Monopolies Commission to the tune of pounds 100m a year. And the job losses? Er, well they are actually nearer 2,500 than 10,000.

Perhaps it is just as well that the regulated business is doing better than expected, because the unregulated bits of BG, such as exploration and downstream oil and gas, are looking sickly at $12 a barrel. Nor does the deepening crisis in emerging markets augur well for BG's international ambitions.

Despite a pounds 90m cut in revenues, rising redundancy charges and higher depreciation, BG has managed to limit the fall in operating profits at Transco to a mere pounds 9m. The departing Ms Spottiswoode might argue that this is what incentive regulation is all about. But it ought to give her successor, Callum McCarthy, some food for thought when the Government gets around to announcing his appointment as the new Energy Regulator.